Free-lunch seekers everywhere can draw a few lessons from the latest insider-trading scandal:
First, insider-trading, as commonly practiced by those who don’t trade all day for a living, is one of the dumbest crimes on the planet. Stock regulators keep meticulous records of every trade, everywhere, and they have sophisticated systems that immediately alert them to anything unusual or suspicious (such as, duh, mysterious pops in stock prices a day before big announcements). These records, moreover, don’t expire in a week. They last forever.
Second, it doesn’t matter how sophisticated and clever you are: You’re still screwed. Goldman’s Plotkin actually deserves a gold star for creativity: buying tips from people on grand juries and hiring folks to work in BusinessWeek printing plants is some snazzy thinking. What wasn’t so sharp was the failure to realise that distant relatives in Russia won’t have particularly persuasive explanations for why they suddenly bet millions on obscure call options.
Third, it’s true, life isn’t fair. Hedge funds and other professional investors, of course, trade on material non-public information all day long. It’s just not called material non-public information. It’s called “research.” And there’s usually nothing sleazy about it. (If you talked to executives, customers, analysts, and consultants in an industry all day, you’d pick up some interesting tidbits, too). So, if you really want to make a gazillion dollars trading today on information that CNBC will report tomorrow, go get a job at a hedge fund.
Eugene Plotkin, 28, pleaded guilty yesterday. He’ll probably serve 5 years in prison. More from the Post.